The CIA's Chain of Brothels

In 1959, the Central Intelligence Agency got into
the prostitution business, opening whorehouses in New York City, San Francisco and
Stinson Beach, California, in each case with the blessing and cooperation of
the local police. The Federal Bureau of Narcotics took a piece of the action,
too, in the role of drug dealer.

The Telegraph Hill branch

The San Francisco branch, a Telegraph
Hill duplex with sweeping waterfront views, was located at 225 Chestnut,
a short stumble away from North Beach’s saloon district. The
prostitutes, many of whom were placed on
government payroll, duped johns into taking acid. Researchers from
Operation Midnight Climax (yes, really) sat on the other side of
two-way mirrors in hope of learning to use LSD to induce subjects to
reveal
secrets or do the bidding of the United States government.

The operation was run by a colorful narcotics agent turned "CIA consultant" named George Hunter White, of whom a colleague said, “He made
that fruitcake Hoover look like Nancy Drew."

White's empire lasted until 1965, when Congress got wind of it and played its customary role,
from the Agency’s perspective, of ants at a picnic. 

For more information, read The Search for the Manchurian Candidate by John Marks.